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How to Get Money Off an HSA Card: Your Expert Guide

So, you’ve got an HSA card, and you’re wondering how to actually use the money inside. The short answer is: you can typically use your HSA card like a debit card to pay for qualified medical expenses, or you can withdraw the funds. However, non-qualified withdrawals before age 65 are generally subject to income tax and a 20% penalty. Let’s dive into the nitty-gritty of accessing your Health Savings Account (HSA) funds!

Understanding Your HSA Card Access Options

An HSA is a powerful tool for managing healthcare costs, offering triple tax advantages: pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Your HSA card is your key to unlocking these benefits. But it’s crucial to understand how to use it effectively and avoid potential pitfalls.

Direct Payment with Your HSA Card

The most straightforward way to use your HSA funds is directly at the point of service. Think of it like a debit card specifically for healthcare.

At the Doctor’s Office: Simply swipe your HSA card when paying for your co-pay or other eligible medical expenses.
At the Pharmacy: Use your card to purchase prescriptions or over-the-counter medications (with a prescription, as of 2020).
For Vision and Dental Care: Eligible vision and dental expenses can also be paid with your HSA card.
Online Purchases: Many online retailers that sell qualified medical products accept HSA cards.

Important Note: Always keep your receipts! Even though you’re using the card directly, you need documentation to prove the expenses were qualified if the IRS ever audits your account.

Reimbursement: Pay Out-of-Pocket, Then Reimburse Yourself

Another method is to pay for healthcare expenses out-of-pocket, and then reimburse yourself later from your HSA. This approach offers flexibility and allows you to strategize your withdrawals for tax planning.

Pay with Cash, Credit Card, or Check: First, cover the expense using another payment method.
Keep Detailed Records: Meticulously document the expense with receipts, invoices, and explanations.
Submit a Reimbursement Request: Access your HSA provider’s online portal or use their mobile app to submit a reimbursement request. This usually involves entering the expense details and uploading a copy of the receipt.
Transfer Funds to Your Bank Account: Once approved, the reimbursement amount will be transferred from your HSA to your personal bank account.

Why reimburse yourself instead of using the card directly? Sometimes, it’s a cash flow decision. You might prefer to pay with a credit card to earn rewards, then reimburse yourself from the HSA. Or, you might want to delay taking the money out of your HSA for investment purposes.

Investment Options Within Your HSA

One of the significant advantages of an HSA is the ability to invest your funds. Most HSA providers offer a range of investment options, such as mutual funds, ETFs, and even individual stocks.

Grow Your HSA Balance: Investing allows your HSA funds to potentially grow tax-free over time, providing a larger pool of money for future healthcare expenses.
Understand Investment Risks: Be aware that investments involve risk, and the value of your investments can fluctuate. Consider your risk tolerance and investment timeline when selecting your investment options.
Withdrawals from Investments: When you need to use your HSA funds, you can typically sell your investments and then use the cash balance to pay for qualified medical expenses, either directly with your HSA card or through reimbursement.

Frequently Asked Questions (FAQs) About HSA Withdrawals

Here are some common questions and detailed answers to help you navigate the intricacies of HSA withdrawals.

1. What are Considered “Qualified Medical Expenses”?

Qualified medical expenses are defined by the IRS and generally include costs for the diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments affecting any part or function of the body. This includes:

Doctor’s visits
Prescription medications
Dental care
Vision care (glasses, contacts, Lasik surgery)
Medical equipment
Transportation to and from medical appointments

Important Resource: IRS Publication 502 provides a comprehensive list of qualified medical expenses.

2. Can I Use My HSA for Over-the-Counter Medications?

Prior to 2020, over-the-counter medications were generally eligible for HSA reimbursement. However, current IRS regulations require a prescription for over-the-counter medications to be considered a qualified medical expense.

3. What Happens if I Use My HSA for Non-Qualified Expenses?

If you use your HSA funds for non-qualified expenses before age 65, the withdrawal is subject to income tax and a 20% penalty. After age 65, the 20% penalty is waived, but the withdrawal is still subject to income tax. It’s always best to err on the side of caution and ensure the expense is qualified before using your HSA funds.

4. Can I Use My HSA to Pay for Health Insurance Premiums?

Generally, you cannot use your HSA to pay for health insurance premiums. However, there are a few exceptions:

COBRA premiums: You can use your HSA to pay for COBRA premiums while receiving unemployment benefits.
Long-term care insurance premiums: You can use your HSA to pay for long-term care insurance premiums, subject to certain age-based limits.
Medicare premiums: Individuals age 65 and older can use their HSA to pay for Medicare Part B, Medicare Part D, and Medicare Advantage premiums (but not Medigap premiums).

5. What if I Accidentally Use My HSA for a Non-Qualified Expense?

If you accidentally use your HSA for a non-qualified expense, you can correct the mistake by repaying the amount to your HSA before you file your tax return for that year. This avoids the tax and penalty implications.

6. Can I Use My HSA to Pay for My Spouse’s or Dependents’ Medical Expenses?

Yes, you can use your HSA to pay for the qualified medical expenses of your spouse and dependents, even if they are not covered by your HSA-eligible health plan. The key is that they must be considered your spouse or dependents according to IRS rules.

7. How Do I Track My HSA Expenses and Ensure They Are Qualified?

Keeping meticulous records is crucial.

Save all receipts and invoices: Organize them by date and expense type.
Use your HSA provider’s online portal: Many providers offer tools to track your expenses and categorize them as qualified or non-qualified.
Consider using a spreadsheet or budgeting app: This can help you stay organized and monitor your HSA spending.

8. What Happens to My HSA if I Change Jobs or Retire?

Your HSA is portable, meaning it stays with you even if you change jobs or retire. You can continue to use the funds in your HSA for qualified medical expenses, regardless of your employment status.

9. Can I Contribute to My HSA After I Turn 65?

Yes, you can continue to contribute to your HSA after you turn 65, as long as you are still enrolled in an HSA-eligible health plan and are not enrolled in Medicare (excluding coverage under parts A and B). However, you can no longer make contributions once you are enrolled in Medicare.

10. Is There a Deadline for Reimbursing Myself from My HSA?

There is no deadline for reimbursing yourself from your HSA for qualified medical expenses. You can reimburse yourself years later, as long as you have the documentation to prove the expense was qualified and incurred after the HSA was established. This opens up strategic planning opportunities, such as paying for expenses today out-of-pocket and then reimbursing yourself in retirement when you might be in a higher tax bracket.

11. What are the Contribution Limits for HSAs?

The contribution limits for HSAs are adjusted annually by the IRS. Be sure to check the current limits for your filing status (single or family) and age. There’s also a “catch-up” contribution for individuals age 55 and older. Exceeding the contribution limits can result in tax penalties.

12. What Happens to My HSA When I Die?

The treatment of your HSA after your death depends on who inherits it.

Spouse: If your spouse is the beneficiary, the HSA becomes their HSA, and they can continue to use it for qualified medical expenses.
Non-Spouse: If a non-spouse is the beneficiary, the HSA ceases to be an HSA, and the beneficiary must include the fair market value of the HSA in their taxable income.

In conclusion, mastering the use of your HSA card and understanding the nuances of qualified expenses and reimbursement options are critical for maximizing the benefits of your HSA. Keeping detailed records and staying informed about IRS regulations will ensure you can access your funds efficiently and avoid unnecessary tax penalties. It’s all about being proactive and informed, and hopefully, this guide has given you the knowledge and confidence to make the most of your HSA!